High River Gold Mines Ltd HRIVF

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High River Gold Mines Ltd

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Post by Sharpmanon Sep 22, 2009 2:39pm

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Post# 16328242

Analysis from C. Charlwood

High River Gold’s (HRG) peer group of West African & Russian mid-tier public gold companies is trading at an average of approx. 15.2 times Q2 Operating Cash flow on an annualized basis. If HRG were trading at this average multiple, the share price would be C$2.33.

Over the last 12 months, HRG has been trading at a low multiple due to the perceived risks of unmanageable debt, potential bankruptcy, potential TSX de-listing, interrupted mill operations and a take-private bid on the company. These risks have mostly been mitigated in the recent past. Severstal (the controlling shareholder) has been doing a good job of turning this company around. If HRG continues to pay down its debt at the same rate as it did in Q2 2009 (C$30M from cash flow), then HRG could be nearly debt free in June2010. If Severstal converts its debt of US$27M, then the company could be nearly debt free in March 2010. These timelines would be lengthened by any new capital investments and shortened by any sale of equity. In addition, HRG still owns approx. $45M in 3rd party public company investments and Severstal owns $.64 warrants of HRG that if exercised will provide $26M cash to the company.

With almost 90% of the minority shareholders holding on to their shares rather than tender to Severstal’s final bid, HRG now has a very strong investor base setting the stage for the next move up in the stock price with any good news. Minority investors are hopeful that the recent management shakeup at HRG is the beginning of a new strategy to maximizing shareholder value. HRG could restructure some of its debt to lower servicing costs and raise a bit of capital to make final repairs to its mills. If it succeeds in doing both over the next few months, then the future looks even brighter for the company.

Risks Alleviated

1)Loan payments are all current.

2)HRG meets all TSX listing requirements.

3)Severstal made its final take-private bid with nearly 90% of minority not tendering.

Financial Performance for first 6 months to June 30th, 2009

4)$44.9M increase in working capital to a positive $2.8M balance.

5)50% increase in Gold production to 141,554 attributable oz vs. 94,624 last year.

6)$52.5M positive cash flow from operations – on track to over $100M for 2009.

7)$53M of debt paid down to a balance of C$135M from $188M.

8)$40M of this debt was paid down in Q2 (funded by approx. $30M cash flow and $10M Severstal private placement).

9)$20.8M pro-forma profit for Q2 (excluding the Prognoz Silver asset write down)

Prospects